Small-business insurance in transition

Agents difficult to displace, but direct sellers challenge status quo

While the shift from agency to online sales will likely continue to be both slower and more challenging in commercial insurance than it’s been in personal lines, the stars are aligning to threaten the prevailing agency-centric model. How might insurers crack the code to sell insurance online directly to more small-businesses? This report follows up on a 2013 small-business insurance survey by the Deloitte Center for Financial Services with new, original research and insights into entry barriers and how to overcome them.

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Selling insurance directly to consumers online is the future, but is it really time to give up the agents?

As innovation continues to disrupt the insurance industry, more small-business insurers are looking to connect directly with customers to sell coverage online without involving a personal agent or broker.

In 2013, a Deloitte Center for Financial Services (DCFS) survey shined a light into the potential market for carriers looking to sell directly over the internet, while offering ideas about how to reach web-centric prospects. Deloitte found that nearly one in five small-business owners surveyed were very likely to buy insurance directly online under the right circumstances, while close to half indicated they were at least open-minded about the possibility of bypassing their agent—in many cases for a relatively small discount.

However, due to the complex nature of some commercial policies and intangible benefits provided by agents, online sales have been slow to develop in the small-business segment, accounting for less than 1 percent of US market share.

While the shift from agency to online sales will likely continue to be both slower and more challenging in commercial insurance than it’s been in personal lines, the stars are aligning to threaten the prevailing agency-centric model. With little economic incentive for intermediaries to offer additional services, along with the growing commoditization of small commercial products and greater demand for 24/7 service, small-business coverage appears to be ripe for automation.

In 2015, DCFS arranged for follow-up interviews with 150 small-business insurance buyers already primed to buy direct. Prospects shared insecurities about dropping their agents, while offering insights on factors that might make them more likely to buy direct.

Whether a pioneer, a traditionalist, or some model in between, small-business insurers will likely need to take action to avoid losing market share to digital-driven competitors. This report outlines four scenarios to help insurers keep up with digital competitors.

Survey-driven options may help in adapting to the digital revolution in distribution

Analysis of the survey results by Deloitte’s subject matter specialists points to at least four potential strategies, or combinations thereof, that small-business insurers could deploy to adapt to the digital revolution in distribution. The first would entail fully embracing a web-direct option, the second rejects disintermediation outright, while the other two facilitate experimentation with direct outreach without necessarily undermining the agency status quo.

The options are:

Move forward with direct sales distribution as a stand-alone launch.

Eschew an online option altogether, but elevate value in the traditional agent channel to head off a potential digital insurgency.

Leverage the technology of direct-to-consumer marketing to develop leads for agents, but stop short of closing the transaction online.

Offer a hybrid, parallel sales approach, providing buyers with both a direct online purchase channel as well as an agent option.

Meet the author

Research Leader | Insurance

Sam is the insurance research leader at the Deloitte Center for Financial Services, putting his journalistic skills and three decades of industry experience to good use analyzing the latest trends and... More

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